UK cities vie to become start-up hubs

Zia Hayat grew up in Manchester, started his business in London but will soon be packing his bags for Silicon Valley. The 31-year-old entrepreneur founded Callsign – a mobile technology company that aims to preserve privacy on the internet.

Callsign is working with banks and telecommunications companies, among others, to allow customers to have one password and personal identification number for multiple applications from banking to online travel booking. They can also prevent routine sharing of their data online.

“It is the last big unsolved problem of the internet. Facebook did social, Google did search, and we can do identification,” says Mr Hayat.

Callsign already has a beta version of its app and has raised $3m. Although Deutsche Telekom and Qualcomm have invested through their venture capital subsidiaries, the original funder was Randall Kruep, a California-based telecoms entrepreneur.

“[Randall Kruep] said I needed to move the business to Silicon Valley, so we are off in six months,” says Mr Hayat, who developed the technology after working on encryption for BAE Systems, the defence contractor, and Arthur Andersen, the professional services firm.

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Enrico Moretti, professor at University of California at Berkeley, wrote in his 2012 work The New Geography of Jobs: “As the global economy shifted from manufacturing to innovation, geography was supposed to matter less. But the pundits were wrong.”

Money certainly helps sustain a cluster. Amar Bhidé, professor at Tufts University in Boston, has argued that the success of a cluster lies as much in the wealth of its consumers and investors as the bright ideas produced by its entrepreneurs or any government policy stimulus.

That is why rich cities such as London, New York and Singapore become hubs for business start-ups. “The problem for entrepreneurship in Scotland, is London,” wrote Erkko Autio, professor of technology venturing and entrepreneurship at Imperial College London Business School, in an analysis of Scotland’s efforts to encourage entrepreneurship.

Many of the best and brightest are drawn to the capital for funding and lifestyle reasons.

However, even these cities have had to raise their game as competition intensifies.

New York, heavily dependent on finance, in an attempt to attract bright engineers has helped fund new campuses for Cornell University and Israel’s Technion Institute of Technology.

Whereas 15 years ago, 80 per cent of educated people moved to a place for a company or job, now 64 per cent choose a city and then find a job, according to Charles Landry, a writer and urban consultant.

Governments can play a role but it is limited. Dane Spangler, a researcher at the Kauffman Foundation, a think-tank on entrepreneurship in Kansas City, found that in the US the top-10 start-up cities for tech businesses in 2010 were all in the top 20 in 1990.

Public sector programmes only work if they build on an “entrepreneurial ecosystem”, says Mr Spangler. Even Denver and Boulder, Colorado, at first glance surprising places to form a hub, have been in the tech business for a long time.

“There are defence installations such as the North American Aerospace Defense; research institutions; and government agencies, such as the National Oceanic and Atmospheric Administration,” Mr Spangler says.

He adds that big government institutions and large companies have the knowhow and attraction to absorb bright people who often then leave to start their own businesses.

St Louis, Missouri, is becoming a life science hub. When manufacturers pulled out, they left skilled people in areas such as information technology and engineering, who then moved into growing industries, supported by state funding. “You get talent and resources thrown off from other things. It is public money following private action,” says Mr Spangler.

Public policy should focus on encouraging these people to stay and collaborate across industries, he says.

Mr Spangler also has his eyes on the next regions and countries to watch.

Malaysia, where four in five people have broadband internet access, is one to watch, he says. Medellín in Colombia is already developed, but his hot tip is Santo Domingo, in the Dominican Republic.

“There is an astounding amount of software development and outsourced call centres. The schools are training kids in programming and selling to larger Latin American markets.”